Office of the Parliamentary Budget Officer
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Economic and Fiscal Outlook – October 2023

Nasreddine Ammar ; Lisa Barkova ; Robert Behrend ; Régine Cléophat ; Mark Creighton ; Matt Dong ; Rolande Kpekou Tossou ; Marianne Laurin ; Katarina Michalyshyn ; Nora Nahornick ; Jason Stanton ; Kaitlyn Vanderwees
Published on October 13, 2023 PDF(opens a new window)

This report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.

PDF

Communications

Quotes

  • Following the contraction in real GDP in the second quarter, we project the Canadian economy to stagnate in the second half of this year and growth to remain weak through the first half of 2024. We project the unemployment rate to rise to 6% in the middle of next year and to remain elevated through the first half of 2025.

  • Assuming no new measures and existing temporary measures sunset as scheduled, the deficit is projected to increase to $46.5 billion in the current fiscal year, 2023-24, and the federal debt ratio to rise to 42.6% of GDP. Under status quo policy, the deficit is projected to decline over the medium term, falling to $8.2 billion in 2028-29.

  • In terms of downside risks, we judge that the most important risk is a larger-than-expected impact on the Canadian economy, including housing, from the Bank of Canada’s restrictive monetary policy, which would negatively affect the Canadian economy and federal finances. In terms of upside risks, we judge that the most important risk is higher-than-projected spending by provincial governments.

Yves Giroux
Parliamentary Budget Officer

News Release

{"id":55,"created_at":"2023-10-13T09:26:39-04:00","updated_at":"2023-10-13T09:27:04-04:00","slug":"economic-weakness-ahead-as-restrictive-monetary-policy-is-maintained-says-pbo-une-periode-de-faiblesse-economique-sannonce-en-raison-du-maintien-de-la-politique-monetaire-restrictive-affirme-le-dpb","title_en":"Economic weakness ahead as restrictive monetary policy is maintained, says PBO","title_fr":"Une p\u00e9riode de faiblesse \u00e9conomique s\u2019annonce en raison du maintien de la politique mon\u00e9taire restrictive, affirme le DPB","body_en":"The Parliamentary Budget Officer (PBO) today released his Economic and Fiscal Outlook. The report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.\n\nIn June and July, the Bank of Canada has increased its policy rate, brining it to 5% based on its judgement that more restrictive monetary policy was needed to restore price stability.\n\n\u201cFollowing the contraction in real GDP in the second quarter, we project the Canadian economy to stagnate in the second half of this year and growth to remain weak through the first half of 2024,\u201d says PBO Yves Giroux. \u201cWe project the unemployment rate to rise to 6% in the middle of next year and to remain elevated through the first half of 2025,\u201d adds Mr. Giroux.\n\nUpward pressure from commodity prices and strong underlying inflation are projected to keep inflation above the 3% upper bound of the control range in the near term. We expect the Bank of Canada to hold the policy interest rate at 5% through the first quarter of 2024.\n\nWith inflation on track to return to its 2% target, we expect the Bank to start lowering its policy rate in April 2024. As the economy enters into material excess supply and commodity prices weaken, we project inflation to return to its 2% target by the end of 2024.\n\nThe PBO outlook includes new measures announced by the Government in Budget 2023 and through September 15. For fiscal year 2022-23, PBO estimates the budgetary deficit to be $38.7 billion (1.4% of GDP) and the federal debt-to-GDP ratio to be 42.0%.\n\n\u201cAssuming no new measures and existing temporary measures sunset as scheduled, the deficit is projected to increase to $46.5 billion in the current fiscal year, 2023-24, and the federal debt ratio to rise to 42.6% of GDP. Under status quo policy, the deficit is projected to decline over the medium term, falling to $8.2 billion in 2028-29,\u201d says Mr. Giroux.\n\nThe PBO report projects that under status quo policy, the federal debt-to-GDP ratio will remain above its 2022-23 level for two years before gradually declining to 37.8% in 2028-29\u2014well above its pre-pandemic level of 31.2% of GDP in 2019-20.\n\nThe PBO report highlights risks and uncertainty surrounding the outlook. Setting aside new measures that are likely to be announced in the Government\u2019s Fall Economic Statement, the risks to the PBO baseline economic and fiscal projection are roughly balanced.\n\n\u201cIn terms of downside risks, we judge that the most important risk is a larger-than-expected impact on the Canadian economy, including housing, from the Bank of Canada\u2019s restrictive monetary policy, which would negatively affect the Canadian economy and federal finances,\u201d adds Mr. Giroux. In terms of upside risks, we judge that the most important risk is higher-than-projected spending by provincial governments.","body_fr":"Le directeur parlementaire du budget (DPB) a publi\u00e9 aujourd\u2019hui ses perspectives \u00e9conomiques et financi\u00e8res. Ce rapport fournit des pr\u00e9visions de r\u00e9f\u00e9rence aux parlementaires pour les aider \u00e0 \u00e9valuer les r\u00e9sultats \u00e9conomiques et financiers des politiques en vigueur. \n\nEn juin et en juillet, la Banque du Canada a augment\u00e9 son taux directeur, le portant \u00e0 5 %, car elle estimait qu\u2019il fallait une politique mon\u00e9taire plus restrictive pour r\u00e9tablir la stabilit\u00e9 des prix.\n\n\u00ab \u00c0 la suite du recul du PIB r\u00e9el au cours du deuxi\u00e8me trimestre, l\u2019\u00e9conomie canadienne devrait stagner pendant la deuxi\u00e8me moiti\u00e9 de l\u2019ann\u00e9e et la croissance devrait demeurer faible pendant la premi\u00e8re moiti\u00e9 de 2024 \u00bb, d\u00e9clare le DPB Yves Giroux. \u00ab Le taux de ch\u00f4mage devrait atteindre 6 % au milieu de l\u2019ann\u00e9e prochaine et demeurer \u00e9lev\u00e9 tout au long de la premi\u00e8re moiti\u00e9 de 2025 \u00bb, ajoute-t-il. \n\n\u00c0 court terme, la pression \u00e0 la hausse sur les prix des produits de base et une forte inflation sous-jacente devraient maintenir l\u2019inflation au-dessus de la limite sup\u00e9rieure de 3 % de la fourchette. Nous nous attendons \u00e0 ce que la Banque du Canada conserve le taux directeur de 5 % pendant le premier trimestre de 2024.\n\nComme l\u2019inflation est en voie de revenir \u00e0 sa cible de 2 %, la Banque devrait commencer \u00e0 abaisser son taux directeur en avril 2024. Puisque l\u2019\u00e9conomie se dirige vers une importante offre exc\u00e9dentaire et que le prix des produits de base faiblit, l\u2019inflation devrait revenir \u00e0 sa cible de 2 % d\u2019ici la fin de 2024.\n\nDans ses perspectives, le DPB tient compte des nouvelles mesures annonc\u00e9es par le gouvernement dans le budget de 2023 et jusqu\u2019au 15 septembre. Pour l\u2019exercice 2022-2023, il estime que le d\u00e9ficit budg\u00e9taire atteindra 38,7 milliards de dollars (1,4 % du PIB) et que le ratio de la dette f\u00e9d\u00e9rale par rapport au PIB sera de 42,0 %.\n\n\u00ab Si on part du principe qu\u2019il n\u2019y aura pas de nouvelles mesures et que les mesures temporaires existantes prendront fin comme pr\u00e9vu, le d\u00e9ficit devrait se creuser pour atteindre 46,5 milliards de dollars en 2023-2024 et le ratio de la dette f\u00e9d\u00e9rale devrait s\u2019\u00e9lever \u00e0 42,6 % du PIB. Dans le cadre d\u0027une politique de statu quo, le d\u00e9ficit devrait diminuer \u00e0 moyen terme, pour atteindre 8,2 milliards de dollars en 2028-29 \u00bb, affirme M. Giroux.\n\nSelon le rapport du DPB, si les politiques actuelles sont maintenues, le ratio de la dette f\u00e9d\u00e9rale par rapport au PIB demeurera sup\u00e9rieur au niveau de 2022-2023 pendant deux ans avant de diminuer graduellement pour atteindre 37,8 % en 2028-2029, soit un taux bien sup\u00e9rieur \u00e0 celui d\u2019avant la pand\u00e9mie, qui \u00e9tait de 31,2 % du PIB en 2019-2020.\n\nDans son rapport, le DPB mentionne les risques et les incertitudes li\u00e9s \u00e0 ses perspectives. Si on fait abstraction des nouvelles mesures qui seront probablement annonc\u00e9es dans l\u2019\u00e9nonc\u00e9 \u00e9conomique de l\u2019automne du gouvernement, les risques qui p\u00e8sent sur ses pr\u00e9visions \u00e9conomiques et financi\u00e8res de r\u00e9f\u00e9rence sont \u00e0 peu pr\u00e8s \u00e9quilibr\u00e9s. \n\n\u00ab Sur le plan des risques \u00e0 la baisse, le plus important, \u00e0 notre avis, serait que la politique mon\u00e9taire restrictive de la Banque du Canada ait des incidences plus grandes que pr\u00e9vues sur l\u2019\u00e9conomie canadienne, notamment sur le march\u00e9 immobilier, ce qui nuirait \u00e0 celle-ci ainsi qu\u2019aux finances f\u00e9d\u00e9rales \u00bb, pr\u00e9cise M. Giroux. \u00ab Pour ce qui est des risques \u00e0 la hausse, le risque le plus important nous para\u00eet \u00eatre une augmentation plus grosse que pr\u00e9vu des d\u00e9penses des provinces. \u00bb","release_date":"2023-10-13T09:00:00-04:00","is_published":"2023-10-13T09:27:04-04:00","internal_id":"COM-2324-055","permalinks":{"en":{"website":"https:\/\/www.pbo-dpb.ca\/en\/blog\/news-releases--communiques-de-presse\/economic-weakness-ahead-as-restrictive-monetary-policy-is-maintained-says-pbo-une-periode-de-faiblesse-economique-sannonce-en-raison-du-maintien-de-la-politique-monetaire-restrictive-affirme-le-dpb"},"fr":{"website":"https:\/\/www.pbo-dpb.ca\/fr\/blog\/news-releases--communiques-de-presse\/economic-weakness-ahead-as-restrictive-monetary-policy-is-maintained-says-pbo-une-periode-de-faiblesse-economique-sannonce-en-raison-du-maintien-de-la-politique-monetaire-restrictive-affirme-le-dpb"}},"pivot":{"publication_id":764,"news_release_id":55}}